The Methodist minister stepped down as the bank's chairman in June, after claims of illegal drug use and inappropriate expenses payments.

West Yorkshire police said in a statement tonight: "A 63-year-old man, from Bradford, who was arrested in Liverpool in November as part of an ongoing investigation into allegations of drug supply offences made in a national newspaper, answered bail today at a West Yorkshire police station and has now been bailed pending further enquiries."

Mr Flowers was suspended by both the Methodist Church and the Labour Party following allegations that he bought and used illegal drugs.

It also emerged that he quit as a Labour councillor in Bradford after porn was found on his computer, although at the time he claimed he was leaving due to pressure of work.

The Co-operative Bank confirmed last year it was seeking to recover contractual payments totalling £31,000 made to Mr Flowers amid reports that he was also the subject of an inquiry into "lavish" expenses claims at the Co-op when he resigned from the mutual's group board in June.

It also emerged that Mr Flowers left the Manchester-based drug charity Lifeline Project in 2004 after an investigation over claims for expenses there.